Black & Decker 2015 Annual Report Download - page 25

11
Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited
number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill
their obligations. In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such
significance that a change in established supply relationships with suppliers or increase in the costs of purchased raw materials,
component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or an inability to market
products. Changes in value-added tax rebates, currently available to the Company or to its suppliers, could also increase the
costs of the Company’s manufactured products as well as purchased products and components and could adversely affect the
Company’s results.
Uncertainty about the financial stability of economies outside the U.S. could have a significant adverse effect on the
Company's business, results of operations and financial condition.
The Company generates approximately 47% of its revenues from outside the U.S., including 22% of its revenues from Europe
and 16% from various emerging market countries. Each of the Company’s segments generates sales from these marketplaces.
While the Company believes any downturn in the European or emerging marketplaces might be offset to some degree by the
relative stability in North America, the Company’s future growth, profitability and financial liquidity could be affected, in
several ways, including but not limited to the following:
• depressed consumer and business confidence may decrease demand for products and services;
• customers may implement cost-reduction initiatives or delay purchases to address inventory levels;
• significant declines of foreign currency values in countries where the Company operates could impact both the
revenue growth and overall profitability in those geographies;
• a slowing or contracting Chinese economy could reduce China’s consumption and negatively impact the Company’s
sales in that region, as well as globally;
• a devaluation of foreign currencies could have an effect on the credit worthiness (as well as the availability of funds)
of customers in those regions impacting the collectability of receivables;
• a devaluation of foreign currencies could have an adverse effect on the value of financial assets of the Company in the
effected countries;
• the impact of an event (individual country default or break up of the Euro) could have an adverse impact on the global
credit markets and global liquidity potentially impacting the Company’s ability to access these credit markets and to
raise capital.
The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact
profitability.
The Company manufactures and sells its products in many countries throughout the world. As a result, there is exposure to
foreign currency risk as the Company enters into transactions and makes investments denominated in multiple currencies. The
Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar,
Brazilian Real, Argentine Peso, Chinese Renminbi (“RMB”) and the Taiwan Dollar. In preparing its financial statements, for
foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current
exchange rates, and income and expenses are translated using weighted-average exchange rates. With respect to the effects on
translated earnings, if the U.S. dollar strengthens relative to local currencies, the Company’s earnings could be negatively
impacted. In 2015, translational and transactional foreign currency fluctuations negatively impacted pre-tax earnings by
approximately $220 million and diluted earnings per share by approximately $1.13. The translational and transactional impacts
will vary over time and may be more material in the future. Although the Company utilizes risk management tools, including
hedging, as it deems appropriate, to mitigate a portion of potential market fluctuations in foreign currencies, there can be no
assurance that such measures will result in all market fluctuation exposure being eliminated. The Company generally does not
hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries, but may choose to do so in certain instances.
The Company sources many products from China and other Asian low-cost countries for resale in other regions. To the extent
the RMB or other currencies appreciate, the Company may experience cost increases on such purchases. The Company may not
be successful at implementing customer pricing or other actions in an effort to mitigate the related cost increases and thus its
profitability may be adversely impacted.